What to Look For
Interest rates are at historically low levels right now. If you are an investor or are considering purchasing an investment property to become one, now is a great time. The tenant demand for rentals is high. Monthly rent prices continue to go up. 2020 has already shown an increase in rental rates. Before you start the process of looking for an investment property, you will need to talk to a mortgage lender to be approved.
It’s important to talk to a real estate professional who is local and has experience with purchasing rentals, working with investors and property management. There are certain things to look for when purchasing a rental or investment property. You want to ensure this is a positive, money-making experience for you.
Make Sure the Numbers are in Your Favor
The most important thing to do is analyze the numbers to be sure you will not lose money on the property. Before you write an offer on a rental or investment property you will want to talk to your mortgage lender and find out what your mortgage payment will be.
Interest rates are a bit higher for investment property purchases versus a home that will be your main residence. You’ll want to know the total monthly payment including principal, interest, taxes, and insurance (often called PITI). You’ll also need to factor in any monthly or annual homeowner’s association dues.
Owners usually pay for the homeowner’s insurance. It’s not typically a tenant’s responsibility. You should then talk to your real estate agent about what amount of monthly rent you can get for the property. They will do a comparative market analysis of similar properties in the area that have rented and are listed for rent.
You will also want to have a cushion for any repairs and upkeep that need to be made. You definitely want to have a positive return on your investment. Keep in mind that your real estate investment should increase in equity over time. Once you have the numbers, you can decide whether or not to purchase the property.
Look For a Property That is Move-In Ready
While looking at potential properties you’ll want to look for properties that are fairly move-in ready. You don’t want to have to make too many cosmetic updates or repairs right off the bat. Find out the age of the mechanicals such as the furnace, hot water heater, air conditioner and the like. Find out how old the appliances are. Be sure you know how old the roof is and how old the windows are.
If nothing has been updated or replaced in the house, that’s probably not the property to purchase for an investment. If you just need to make a few repairs, replace a few things and do some minor cosmetic updating, you’re in a much better position. The more move-in ready the property is, the better.
Location, Location, Location
Your investment property should be in a desirable location. This is especially important for the purpose of increasing in value. School districts matter. The property should be in close enough proximity to stores, restaurants, transportation, hospitals and more. The investment will be better if it’s in a crime-free or low-crime area.
You can search online for crime statistics, if there are any registered sex offenders in the area and the like. Take into consideration if the property backs to a busy road or is on a busy thoroughfare. You will be able to charge a higher rent price if the property is in a desirable area and location.
Make Sure The Property Can Be Rented
If you are looking at homes that have homeowner’s associations be sure to find out if the property can be rented. Some communities don’t allow renting. Some have a certain percentage of rentals allowed. Also be sure that rental restrictions are not current subjects of discussion or are on the table for voting at homeowner’s association meetings.
There are many places that have a high possibility for short term rentals. Many of these areas are tourist locations where the owner rents out the property as a vacation rental. Some examples of perfect locations for vacation rentals would be a home in Cabo San Lucas, Miami FL or in the mountains of Colorado.
Homeowner Association’s Budget and Special Assessments
If you are considering purchasing a property that is part of a homeowner’s association, be sure to see the budget and be aware of any special assessments. It’s important to make sure the association has strong reserves and that homeowners are paying their dues. Sometimes when associations aren’t financially strong they impose special assessments on the residents if money is needed for improvements. This can be a strong determining factor on whether or not the property is right for an investment property.
If you don’t have experience in being a landlord or property management, you might want to hire a property management company. The typical charge is between 8% and 12% of the monthly rent. This means if you are renting the property out for $1,500 per month, you will pay approximately $150 per month for property management.
Property managers collect rent, answer tenant’s questions, respond to tenant’s requests for repairs, do move-in and move-out walk-through, check on the property periodically and more. Be sure you get the property management services in writing so you know what the cost of services covers.
An investment property can be a strong investment if you do it right. Taking the time to find the right investment property is important. Real estate can be a fantastic investment in the long run. Don’t be afraid to ask questions and get advice from your local real state professionals.